This is terrific: concise and to the point. Someone please send articles like this to Obama if for no other reason than that when he leaves office all his found money is not lost and he need not become a public charge as so many other beneficiaries of affirmative action and professional sports have.

It´s obvious now that Paul Krugman is and was right. The "confidence fairy" hunters are now out of ammo and only stick to their ideology because they are at the steering wheel and wont admit defeat. More austerity will bring back confidence. Confidence in what? How can you earn money in Europe if consumer and state demand are shrinking?

Demand inside Europe and some inflation in Germany is needed. We have to stimulate the economy. Raising exports in Germany and a stream of skilled workers to Germany will only kill the whole european process of growing together.

We have been betrayed by banks and politicians from the right and left (Schröder and Merkel).
Instead of growth and security we got cheap hard labor and bailouts for rich banksters and "investors". And now we got so low interest payments that the social security of old people crumbles.

You have obviously no understanding of the public sector and economy.
Minting that coin would not mean to pay down debt with it.
(Even Jon Stewart did not get it.)

You create NEW debt that does NOT count against the debt ceiling. I give you that it´s a trick. But a trick against the REPs tricksters who don´t want to have any spending cuts to the american war machine, but want to rip the social security net to shreds.
Dumb people like you who always laugh and sneer before thinking will be the first to get under if America defaults because of the blockade by REPs.
Please read P. Krugmans article on the topic.

In the long run, public sector finances follow exactly the same principles as any household's spreadsheet.

The 'invention' of fiat money didn't change the basics of financial arithmetics. If the US keeps ignoring these laws, it will lose its status as world trade- and reserve currency rather sooner than later. The Yuan is already lurking around the corner.

. . . And nothing could stop future governments from circumventing the nation's 'checks and balances' by minting a 10 trillion dollar coin . . . even 100 trillion dollar coins. This is then when a loaf of bread will cost 500 billion dollars.

One issue that you don't mention is that despite the high unemployment and falling wages, no European firms are moving their production to the Southern European countries. Despite the single currency and (half-hearted) single market there's still a huge sense of nationality in EUrope's companies and an unwillingness to deal legally, culturally and linguistically with movign production to where pure economics says it should go. There's also the perennial infrastructure problem - the massive public spending in the Southern countries should have produced significant improvements in the infrastructure necessary for business, but instead corruption saw it wasted on projects like that regional Spanish airport with no business plan other than the theft of public money by the construction companies.

Not true. Volkswagen and Airbus, to name just two established European firms, have recently announced large investments to expand production in Spain.
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Notwithstanding: "Southern Europe" struggles to compete for investment with Eastern Europe right now (where wages & taxes are obviously lower, and where there is less political uncertainty). Scandinavian, German & Dutch businesses are probably investing more in Poland, Slovakia & the Baltics than they are in Spain, Portugal & Italy.
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Nonetheless, investment patterns do not really follow national borders (or, they do so to a far lesser extent than before).
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Spain actually has some of the most impressive infrastructure in Europe. What it lack is business-friendly labour laws, business friendly tax regimes, a good court system for enforcing contracts and easy (ideally English language) communication with government. If the Spanish government pulls that off, it will see far more inwards investment from the rest of Europe.

Growth is dead. The key thing to do now is create more jobs in a shrinking economy. With ecosystems collapsing, it is impossible to consume our way out of our problems. Grow the economy faster, change the climate faster. Damage the food supply more.

I was just reading about the travail of a Korean tourist in Greece. The man was doing an around-the-world backpacking trip. He found himself in Athens just when the police was conducting a major operation against illegal immigrants. A policeman approached him, apparently to ask for documents. Having been to some fairly dodgy places in the world, our tourist decided to ask to see his badge. The policeman, forgetting perhaps that they were not in Sparta, responded by punching the visitor in the face. He then handcuffed the poor Korean and took him to the police-station, where he rendered additional beating, apparently in front of bystanders.

A country with a shortage of civilizational values isn't going develop some because of money printing.

Those of you with a longer memory than R.A. might recall what happened during the Asian financial crisis. Devaluation of the Indonesian rupiah didn't bring about economic recovery. What it did was unleashed an orgy of rape and arson. The notion that a nation can devalue its way to prosperity is stupid. If Greece and Spain used their only currency, they would have defaulted on their external debt already. The former wouldn't abide by conditions required for IMF assistance while the latter is far too big to be bailed out by the international lender-of-last-resort.

Right.... so, because of the actions of a few thuggish coppers, you decided to call the whole nation of Greece, "a country with a shortage of civilizational values".
Because police brutality only happens in Greece, right?
Which perfect country do you come from by the way?
I am sure that if we look into the history of you nation, we will find not one example of similar events.

I suggest you look what an ACTUAL ISLAND has done - an island which is much smaller in relation to its towering neighbour than Portugal (pop. 10 mil.) in relation to Spain (pop. 47 mil).

I'm talking of course about IRELAND (pop. 4.5 mil.) which despite a huge trade deficit with Great Britain (pop. 62 mil.) has one of the highest overall trade surpluses (in relation to its GDP) among EU member states.

Why?

Because the Irish have managed to move their entire production up the value chain over the past 20 yrs - and Portugal has not.

I fully concur, New Zealand (pop 4.4 m) has a free trade association - CER - with Australia (pop 22 m) and the Kiwis ran full tilt and gained all the benefits it could while Australian business decided it was too small and not worth the effort. Big trade surplus to NZ V Aust

Weakness in the South is becoming a "put option" for Germany industries. Weak activity in the South is depreciating the euro, which helps manufacturers and industrial clusters in the eurozone. Unfortunately, Germany has a well developed existing manufacturing base which is readily available to satisfy external demand from a weakening euro. This explains the persistence of Germany's trade surplus.

Germany's economic model is one of low internal growth (including wages) when priced in Deutschemarks or euros, but high growth (including wages) when priced in dollars, pounds or old French francs. The problem with the euro, for Germany, is that it is not appreciating much, to improve Germany's dollar-denominated wages. The old deutschemark would have risen faster to slow Germany's export competitiveness while giving the nation a collective pay raise to purchase "currency-discounted" goods from Italy, Spain, France, etc. This would increase Germany's imports, while providing external demand for Italy, Spain and France's exports.

Wages in Germany are high, compared to fellow EU countries, like Spain, Greece or Portugal. My point is that it should be higher. Even prior to unification, Germany has had low domestic wage growth - but high growth in escudos or pesatas when deutschemark rose in value against the escudos or pesatas.

A good example right now is between the US and Canada. The Canadian dollar in 2000 was close to $1.7 US dollar. Today, they are at parity. If Canada and the US both ahd no economic growth in the last 12 years, Canadian wages would be 70% higher in US dollars just because the exchange rate rose. Japan's GDP right now is 20% higher since 2008, despite a financial crisis, earthquake, tsunami and nuclear disaster because the yen rose in value against major currencies. But Japan has weak internal growth, but high growth measured in foreign currency as the yen keeps rising.

Likewise, Spain and Portugal had high internal growth...too high...that the declining pesata or escudo would have corrected for the excess. Germany's internal growth was too slow (as it was for much of the 2000s), that the old deustschmark should have risen in value...making German exports less competitive, while increasing German wages in escudos to buy more Portuguese goods.

When did the deutshmark grew in relation to the escudo or the peseta? What has Spain got to do with Portugal anyway? In the 80s there was a devaluation of the escudo because the country had just finished a long period of turmoil which involved the loss of the African colonies, a coup, and etc.
You avoided my question anyway which thame demonstration that Portugal has actually a trade balance with the EU NOT counting Spain, which means that Portugal, due to its geographic location is at a disadvantage in regards to ifellow EU countries.
Wages in Germany didn't rise because of reunification. It was a mix of luck and Teutonic patience. But be certain that at least for the type of thing I do, wages are in fact not that different. I know Germany.
What should astonish people like you who defend that there is a 'core' and a 'periphery' is that a country like Portugal, has a pretty balanced trade with a country like Germany.
It only proves how generalised economic models are nothing but jokes.
You guys can't predict or explain a thing.
Nothing too personal.
Just as flight attendants are nothing but barmen in a suit , economists are nothing but grocers in a suit. They can perform simple arithmetic operations . Trying to apply complicated maths to economics is a joke, as proven by the ridiculousness in which the financial world is at the moment.
Please leave mathematics alone.
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;-)

Munzoenix, you seem to have serious problems with basic mathematical economics, as, e.g., in one of your previous posts where you claimed that incomes of guest workers who transfer money back to their homeland create a negative current account balance for the receiving country. In reality, transfers from nationals working abroad contribute significantly to paying for imports, thus influencing the current account of the ‘receiving’ country positively - not negatively.

In this post you claim that the Canadian dollar's rise over the USD lowered the comparable wages in Canada toward the USA, while the opposite is true. If the value of the CAD rose by 70% toward the USD (your claim), then, of course, Canadian wages also rose by 70% in comparison to US wages - and not the other way around, which is your assertion.

Concerning German wages: More than 60 percent of Germany's trade is with countries outside the Eurozone. Of course, the country's competitiveness must, in this case, also be measured in the only global trade currency in existence, which is, since Bretton Woods, the US Dollar.

Germany's wages became uncompetitive after unification because the newly “acquired” one third of the population (in former East Germany) had lost its Comecon-market and suffered from a generally uncompetitive economy (with West German high wages). It was the market-realities that restrained higher wage demands in East Germany. This was a normal process of ‘supply and demand’ under the condition of a liberalized labor market as promoted by Chancellor Schroeder's Agenda 2010.

In reality it was only East German wages that came down (still being 300% higher than in neighboring Poland tho’), making the overall German wages appear stagnant. The German export industries are located in West Germany, whose export-related wages rose to be the highest wages in the world.

Citation from Forbes magazine of 12/21/2011:

“In 2010, Germany produced more than 5.5 million automobiles; the U.S produced 2.7 million. At the same time, the average auto worker in Germany made $67.14 per hour in salary and benefits; the average one in the U.S. made $33.77 per hour. Yet Germany’s big three car companies — BMW, Mercedes-Benz, and Volkswagen — are very profitable".

This is proof that wages aren't the main decisive factor for a country's export prowess. As Michael Maibach, president and chief executive of the European American Business Council, puts it, union-management relations in the U.S. are “adversarial,” whereas in Germany they’re “collaborative.” The latter is one of Germany's keys to success.

Yet, one imperative should be engraved in stone in the EU: labor costs should never get ahead of labor productivity - at least not over a considerable lapse of time.

The reason for the 2010 downfall of EU countries, which are in financial trouble now, is that this 'iron law of wages' was violated . . . and not Germany's supposed 'low domestic wage growth'.

You seem to have a serious problem reading - because that's not what I wrote. Remittances to a country is a positive to the Current Account (again, read carefully). Secondly, you said: "In this post you claim that the Canadian dollar's rise over the USD lowered the comparable wages in Canada toward the USA, while the opposite is true." Again, that is not what I wrote.

Here is what I wrote: " The Canadian dollar in 2000 was close to $1.7 US dollar. Today, they are at parity. If Canada and the US both ahd no economic growth in the last 12 years, Canadian wages would be 70% higher in US dollars just because the exchange rate rose."

Again, I can't help you if you can't read. You also seem to have a serious problem with your manners - if you want people to read your post, be more respectful (as well as carefully reading).

In spite of all that, Germany had an important adjustment before the 2008 crisis, in particular in unemployment benefits and other government spending. This ensured they were weathering the crisis better but at the cost of the population.
If Germany would loosen its policies and distribute more of its gains to its people, German imports could rise, including of course tourism to Greece and other imports from there and other southern (and eastern) European countries and this could help the EZ and the EU in getting over the trouble. Instead, Germany pays a lot to the crisis funds which makes its people poorer.

Well, there is a huge difference between current profits and debt. Germany pays actually a very low interest (some say even negative) on its debt, why would it pay back? It can of course use its surplus to pay back debts, but this is not wise.
By the way, do you talk about the debt of the country, or the debt of the German government? Public debt is 2.7 trillion Euro, but this is the government's, not that of the country.

Personal assets can't be used to pay public debts. If this would be the case, then the governments of Greece, Portugal, Spain, Italy could simply confiscate the private fortunes of their many millionaires and billionaires and pay off their countries' sovereign debt. And on the other hand, public money can't be used for private consumption either. So, I still don't know what you are talking about.

So private profits are generated even when the state must pay back debts. That's what I meant.
By the way, the Hungarian government did just this (but did not significantly decrease debts with it just avoided an even bigger increase).
Just to complain a bit.

LSz: "private profits are generated even when the state must pay back debts".
Of course, otherwise private enterprises will flee the country and only state companies would remain behind. We had all that, didn't we?

As explained by me before trade between Portugal and the rest of the EU is well balanced, with the exception of Spain. I had listed the aumount of goods exported/imported from selected nations, and this is what transpires (data taken from INE - Portugal's statistics bureau):

So again, I believe amalgamating nations in those with trade deficits and those with no trade deficits in the 'traditional' made in the past two three years is wrong, we have to look into each countries specificities and understand what truly is happening.

Portugal has a trade surplus with France and the UK, a trade deficit with Italy and Germany (note that the one with Germany is not so high) but it all goes down the drain thanks to the 'big neighbour' effect. It is a problem I hope economists around the World, and especially those working for official institutions start taking better into account, because this is what is at stake.

Portugal indeed has a huge trade deficit with Spain, but you may want to consider what it's current account position is. The current account includes incomes generated by Portugese citizens in Spain, and who may remit money back to Portugal. I suspect that Portugal has a lot of workers in Spain (and France) who sends money back.

I don't really see where you're getting at, as if that would change this actual fact, which obvously cannot be changed by transferring the entire population of Portugal to Spain?
There aren't that many Portuguese citizens in Spain (probably less now with the crisis)
My ppoint is and remains that Portugal should have a special measure (eg a low corporate tax) to circumvent this over-dependence which arises from it being part of the EU.
There would be two ways of sorting this one out:
- The historic one was trade with non-Europeans
- Taxation to Spanish products
The first one is obviously feasible in the long run, the second goes against free-market law. The only one which would be an in-betweener is the low corporate tax (or increasing quota by the EU).
Portugal should be given equal treatment in the EU.

I suggest you look what an ACTUAL ISLAND has done - an island which is much smaller in relation to its towering neighbour than Portugal (pop. 10 mil.) in relation to Spain (pop. 47 mil).

I'm talking of course about IRELAND (pop. 4.5 mil.) which despite a huge trade deficit with Great Britain (pop. 62 mil.) has one of the highest overall trade surpluses (in relation to its GDP) among EU member states.

Why?

Because the Irish have managed to move their entire production up the value chain over the past 20 yrs - and Portugal has not.

Pedro, current account is more important in the long-run than trade surplus/deficit. If a lot of Portuguese citizens do remit income from Spain, back to Portugal, it supports consumption in Portugal (thus Portugal can run a trade deficit with Spain and it is not bad).

Secondly, countries do not have to have trade surpluses with everyone - maybe one country (Korea or Taiwan), provides crucial components to another (China), which then exports the products elsewhere. China has had large sizeable trade deficits with Korea and Taiwan (haven't checked the data recently), but the end product was sold to the US or EU. Both China and Japan have huge trade deficits with resource countries.

If Portugal gets vital components from Spain, and has remittances from Spain, the current account is a broader measure than the trade deficit.

Munzoenix' notion that incomes of guest workers, who transfer money back to their homeland, create a negative current account balance is wrong. Transfers from nationals working abroad contribute significantly to paying for imports, thus influence the current account positively - not negatively.

In the case of Portugal, if these workers' transfers from Spain and France to Portugal would diminish, Portugal's current account (not necessarily its trade balance) would be even more in the red.

International investors were 'zero' interested in Ireland before the country joined the European Union. Truth is, Ireland was Europe's alms house before it joined the common market. That's a verifiable fact Josh!

Most experts agree that only Ireland’s membership of the EU has facilitated its move from an agricultural based economy to one driven by hi-tech industry and exports. In general, throughout history the British considered the Irish as stupid potato-eating and beer-puking Pope-lovers, who were merely qualified to do the most undemanding jobs in the U.K.

It was only the vast EU market that made it all of a sudden interesting for investors (mainly from US) to bring production and head offices to the 'corporate tax haven' of this 'fellow English-language' country.

This fact teaches us two lessons: Without the EU Ireland would still be Europe's isolated poor house and absent the shared English language US companies would have no reason to give location preference to Ireland over - e.g. - Portugal.

It has to be said: R.A's pooh-poohing of the ability to grow through capital outflows & export growth, might be relevant for the US or Japan but probably isn't accurate for the eurozone (or wider EU).

The EU (& eurozone) is free trading, quite unlike anywhere else. The EU exports 44.9% of GDP, while the eurozone exports 45.6% of GDP. (Imports 43.1% & 43.2% respectively.) At that level, a completely stagnant domestic economy could still grow at about 1.5% annually, if the global trading part of the economy grows at a mere 3%.

The eurozone probably will either see a partial renewal of capital flows to "the periphery" and recovery of investment, or it will see continued growth of exports in high single digits (private sector employment has been growing in Spain for the past 2 quarters), even as austerity finally comes to an end. Or probably some combination of all of the above.

The US by contrast exports 14.1% of GDP, and Japan exports 15.2% of GDP. At that level, it takes a (>3 times) proportionally much larger growth of exports to adjust to new capital flows (i.e. the US or Japan would require much larger structural adjustments, new investments, insolvencies & new business formation, in order for trade to add a proportionally similar amount to GDP).

Given the massive trade shares of these economies, given the pace of export growth, and given the fact that contractionary fiscal policy is getting less contractinoary, my bet is that unemployment will fall slowly over the full course of the year, and then fall much more rapidly next year.

Any takers?

(Aside from this, I agree that this whole situation is quite awful. The single most important change is towards a single eurozone financial sector, in which investment flows would be far more stabilised over time, and in which banks would actively support cross-border income smoothing. Further expansion of English language workplaces & businesses is another route to labour mobility; making welfare support more mobile would help too, among other such pro-mobility reforms. Then, there is the EC's entrepreneurship drive, which has to be a good thing.)

So, Austria, Belgium, Estonia, Finland, Germany, Ireland, Luxembourg, Malta, Netherlands and Slovenia have been in surplus for the whole crisis. Slovakia got a deficit in 2009 and 2010, but was back in the surplus in 2011.

Italy and Spain have trade surplus for 2012 for the first time since the beginning of the crisis.

Cyprus, France and Portugal are close, there balance should tip to surplus by next year. So almost all the economies of the Euro Area economies should be in trade surplus by 2013. There is hope the worst of the crisis is finally behind us.

Things don't look that good for Greece, but the trend is on the right direction. Maybe she'll get a trade surplus for 2015, if things keep going at the same pace.

However, trouble looms outside of the Euro Zone. Czechia, Danemark, Hungary, Iceland, Norway, Sweden and Switzerland are doing all right; but Bulgaria, Lativia, Lithuania, Poland, Romania and UK are in the red ink. More worrying is UK, which numbers aren't ging in the right dirction. It almost doubled it deficit in 2012.

Actually, the whole of Eastern Europe should be running large current account deficits. The fact that a few countries do run modest deficits, is not a problem. There is enormous potential for high-yielding capital investment across the region.

It is right that developed countries (with very high capital stocks & lower marginal yields) probably should be running current account surpluses - capital should be flowing to the poorest countries with lower capital stock, where marginal returns should be much higher (assuming strong institutions & property rights).

Since Europe has a single currency and strong protection of property, we expect large current account deficits & very high investment in the poorer states (until they have absorbed a large capital stock, at which time their debt/ equity repayments take the form of trade surpluses). Caveat: there are limits to the pace with which capital can be efficiently absorbed, and while wage levels should converge, they shouldn't get ahead of labour productivity (as they did during the Spanish & Greek booms).

Spain (& perhaps Greece) will probably achieve a current account surplus only briefly - with recovery, Spain might again run a deficit for many years. That is good & healthy - it is a consequence of Spain's ability to return higher real yields on marginal investment than are available in the capital flooded markets of Germany or Netherlands.

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The UK runs a large persistent trade deficit primarily because of invisible earnings through the financial sector - the UK's net national investment position has been quite stable over recent decades. So while the UK is highly exposed to its financial sector (if London's banks collapse or emigrate, the UK would crash), what appears to be an unsustainable trade account deficit is actually broadly ok. The fiscal deficit is a bigger problem.

Excellent analysis, shaun. Similar is true for the US; her large trade deficit is partly due to her 'invisible earnings' through her sizable financial sector. This is also the reason why it's less worrisome than it would be otherwise.

And in particular, this (of your notions) should be engraved in stone (in the Eurozone): labor costs shouldn't get ahead of real labor productivity - at least not over a considerable lapse of time.

Notice the positive impact of the recent free deep trade agreement with South Korea: EU exports are up by a massive 18% year-on-year to €31 bn, while EU imports are up by a comparatively massive (given recession) 7% to €32.3 bn.

Trade arbitrage has undoubtedly contributed to growth (or at least ameliorated the pain).

This bodes very well for the similar agreement already concluded with Singapore (EU exports 27.1 €bn; EU imports €16.1 bn). According to a Singapore news article I read somewhere, a number of Singapore manufacturers (which primarily make high value electronic components & intermediate goods) are considering setting up assembly plants in Romanian, Turkey & Bulgaria.

And obviously, this South Korea bilateral trade boom provides a very good indication of the massive potential that would arise from deep trade liberalisation (& regulatory integration) across EU-Canada, EU-Japan and EU-US.

That normal incentives and corrective processes would be impaired by the adoption of the common currency is not some unforseeable black swan. How the Euro was sold without the simultaneous merger of the member states' most weighty fiscal programs (social welfare in particular) is testament that otherwise sensible folks still lose their minds at the prospect of a free lunch.